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Depending on the source, the U.S. economy is in flux with some economists predicting a downturn in the coming year and others forecasting slow but steady growth.

However, one industry that has been relatively oblivious to these extremes has been the commercial construction marketplace. In fact, the Bureau of Labor Statistics and a report from Timetric’s Construction Intelligence Center project the construction industry to be one of the fastest growing industries into 2020. FMI also expects engineering and construction spending to grow approximately 3% through 2019.

Other key trends include the increased use of technology such as:

  • drones and mobile devices to increase productivity and efficiencies especially in the field; 
  • ongoing shortage of qualified labor; 
  • growing popularity of design/build methodologies, which currently represents about half of all non-residential spending according to the Design-Build Institute of America (DBIA); and 
  • uptick in risks associated with all of the above. 

Each year, RT Specialty (formerly New Day Underwriting Managers) polls its resident experts to identify the key influences and challenges confronting the national environmental and construction professional liability marketplace. The goal is to help developers, owners and contractors better understand the risk management strategies that are currently available for better protecting against the costly delays and occurrences that can derail projects and even financially cripple entire organizations.

For instance, while the 2019 Market Update predicts a generally stable commercial insurance market providing abundant offerings, expanding terms and consistent premiums for both project and practice programs, it also foresees a rise in the frequency and severity of claims especially within the hospitality, habitational, health care and energy sectors. This is particularly true with pollution legal liability coverage forms, which experienced a rise in claims primarily related to the cleanup of microbial issues driven by today’s intensive “discovery” methods; the restoration of properties contaminated during the recent spate of natural disasters; and the renovation of lands damaged by pipeline spills or leaky oil and gas wells. 

The report also analyzed the type and total number of claims recorded within the company’s book of roughly 1,000 contractors (general contractors, specialty trades, construction managers, design/builders, architects and engineers), which purchased contractor’s professional liability coverage (CPrL) between 2014 and 2017. Notable findings revealed that about 60% of these claims were related to construction management problems ranging from safety issues and the mismanagement of subcontractors to the poor inspection of work and misidentification of environmental hazards. The remaining 40% were then concerned with everything from subcontractor design and in-house engineering errors to surveying and value-engineering mistakes and oversights. As a result, CPrL is expected to remain a predominant catastrophic coverage with high-severity, six- to seven-figure claims becoming more frequent as the number of buyers continues to increase. 

In addition, more carriers are offering contractor’s pollution liability (CPL) than ever before. Asset protection is the prevalent driver. CPL claims on RT Specialty's ECP book of roughly 1,200 contractors (both general contractors and specialty trades) increased by 60% from 2014-2015 to 2016-2017 with 29% of the claims related to microbial matter and the disturbance of utility lines coming in a close second. Other claims were predominantly related to issues surrounding pre-existing, asbestos-containing materials. Subsequently, carriers are now expanding their coverages forms to include enhancements for bacteria, mold, microbial matter, legionella, silt/sedimentation, silica, petroleum hydrocarbons, low-level radioactive waste, illicit abandonment, escape of methamphetamines, medical/infectious/pathological wastes and electromagnetic fields.

For 2019, RT Specialty's ECP specialists also foresee a generally stable commercial insurance marketplace issuing abundant offerings, expanding terms and consistent premiums for both project and practice programs. In other specific areas:

  • With a volatile and uncertain economic environment coupled with a burgeoning real estate developers (RED) professional liability insurance market, 2019 is expected to bring continual expansions in coverage and competitive rates as many first-time buyers look to shore up their risk management portfolio. With the expansion of rectification and protective coverage forms, the education of buyers on key coverage benefits (exposures, claims, coverage, program structure, transition from more limited coverage offerings, etc.) will also likely play an important role in the continued development of this insurance line.
  • A continually undersold and under-purchased product, owners protective professional insurance (OPPI) sales have increased dramatically over the past few years. Design professionals often carry low limits of professional liability insurance that are shared among all services performed on every project in which they are involved. As a result, OPPI is becoming an increasingly effective and economical alternative for owners and developers looking to protect their assets. Previously, project-specific professional liability was the historical insurance method in this marketplace. But its cost and limitations have now made OPPI the preferred cost-effective alternative for insuring owner’s risk. 

Liability is a constant threat no matter the project. Every construction effort contains its own set of risks. Preparation and due diligence are the only ways to minimize challenges and overcome errors both big and small before they lead to catastrophic results. The 2019 Market Update offers just one more example of the importance of risk management strategies and their relevance for keeping projects on track and avoiding catastrophic results no matter the cause. 

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